Expresso Pty Ltd (Expresso) is an international distributor of coffee machines. Expresso specialises in selling automated and manual coffee machines to department stores and specialist coffee shops in Australia and New Zealand.

During the 2019 financial year, Expresso expanded its product range to include coffee making accessories and coffee beans. Expresso has also set up an online shop, so customers can purchase products via its website. Customers who purchase goods online only become debtors when the goods they ordered are actually received by the customer.

In the past six months, Expresso has diversified its business into China and Japan. Two founding board members resigned in September 2018 and have since been replaced with two new board members who have solid knowledge of the Asian markets. This has proven invaluable in the development of Expresso's business plan. The business plan includes expansion into the developing countries of Papua New Guinea and Indonesia; however, these economies are currently unstable. There has been a significant decline in local Australian sales in the second half of the financial year, while the company has been focused on the expansion into the Asian markets.

As the business is expanding rapidly, there has been a significant upgrade to the IT systems, with the accounting system tailored to ensure that month-end reporting, which includes the consolidation of entities with foreign currencies is completed efficiently. Management's annual bonus is dependent on a KPI that requires a high liquidity position on the balance sheet at year end.

As an auditor for Douglas Chartered Accountants (DCA), you have been assigned to the audit team for Expresso, for the financial year ending 30 June 2019.

During the audit planning stage, the financial controller has given you the trial balance for Expresso for 30 June 2019.

Expresso - Extract from the trial balance 30 June 2019

Account 065 Debtors $234,876

Account 078 Trade creditors $768,022

Account 080 Secured loan (non current) $640,578

Account 098 Revenue $8,453,568

Required

(a) Identify three (3) conditions or events that may indicate risks of material misstatement for Expresso.

(b) Based on overall background, identify three (3) account balances at risk of material misstatement .

(c) For each account balance identified in (b) above, identify the key assertion at risk of material misstatement.

(d) Justify your answers to (c) above

(e) For each key account balance at risk identified in (b) above describe an

extended substantive test of detail that is responsive to the key assertion at risk

of material misstatement.

You may wish to format your answers to (b), (c), (d) and (e) as follows:

(b) Account balance at Risk (c) Key assertion at Risk (d) Justification of key at Risk (e) Extended substantive test of detail

Answer rating: 100% (QA)

Question a C onditions or events that may indicate risks of material misstatement ... View the full answer